Syllabus: Cambridge - International AS & A Level Economics
Module: 1.1 Scarcity Choice and Opportunity Cost
Lesson: 1.1.2 Need to Make Choices at all Levels

Introduction

This lesson sits within Theme 1 of the Cambridge Assessment International Education International AS and A Level Economics syllabus, focusing on the fundamental economic problem of scarcity and the resulting need to make choices. Section 1.1.2 develops students’ understanding that scarcity affects individuals, firms and governments at all levels of economic activity. It is foundational for later topics such as resource allocation, opportunity cost, market failure and government intervention, making it essential for both conceptual clarity and exam success.

Key Concepts

Scarcity refers to the basic economic problem that resources are limited while human wants are unlimited. Because of scarcity, all economic agents must make choices. Choice involves selecting one option over another, which leads directly to opportunity cost, defined as the next best alternative foregone. Individuals face choices such as how to allocate income between consumption and saving. Firms decide how to allocate factors of production between different goods and services. Governments must choose how to allocate finite tax revenues between competing priorities such as healthcare, education and defence. The key insight for students is that every choice has a cost, even when no money changes hands.

Real-World Relevance

At an individual level, students choosing whether to take part-time work or focus entirely on study face an opportunity cost in terms of income or grades. Firms regularly confront scarcity when deciding how to deploy limited capital, for example a manufacturing company choosing between investing in automation or expanding its workforce. At a government level, recent UK budget decisions illustrate scarcity clearly, with increased spending on energy support requiring trade-offs elsewhere due to limited public funds. These examples help students see that scarcity and choice are not abstract ideas but constant features of real economic decision-making.

How It’s Assessed

In Cambridge AS and A Level Economics, this topic is commonly assessed through short data response questions and structured essays. Students may be asked to define scarcity or opportunity cost, explain why choices must be made at different levels, or apply the concept to a given scenario. Command words such as define, explain and analyse are frequent. Strong responses clearly distinguish between individual, firm and government decision-making and use accurate economic terminology. At A Level, evaluation may be required, for example assessing the significance of opportunity cost in government policy decisions.

Enterprise Skills Integration

This topic aligns closely with decision-making and problem-solving skills. Through Enterprise Skills activities, students can simulate real resource allocation decisions, weighing costs and benefits under constraints. Business simulations and scenario-based tasks allow learners to experience scarcity in practice, making trade-offs and reflecting on consequences. This supports commercial awareness by showing how economic theory underpins real organisational decisions, reinforcing learning through active application rather than abstract description.

Careers Links

Understanding scarcity and choice supports Gatsby Benchmark 4 by linking curriculum learning to careers. Roles in economics, finance, public policy, management and consultancy all require daily decision-making under constraints. For careers leads and SLT, this topic provides a natural bridge between economics lessons and pathways such as economics degrees, civil service roles, business management and data analysis. It also supports Benchmark 6 by helping students understand workplace decision-making contexts.

Teaching Notes

A common misconception is that opportunity cost only involves money. Reinforce that time, welfare and non-financial benefits are equally relevant. Use simple starter activities such as asking students to choose between two mutually exclusive options and identify the opportunity cost. For stretch and challenge, ask students to evaluate whether opportunity cost is more significant for governments than individuals. As an extension, link this topic forward to resource allocation and market mechanisms to build conceptual continuity across Theme 1.